Factoring finance is a form of financing in which a business sells its accounts receivable (invoices) to a third party at a discounted rate. The third party, known as a factor, advances a percentage of the invoice value to the business and collects payment from the customer. There are two types of factoring: recourse and non-recourse. In recourse factoring, the business is responsible for any unpaid invoices. In non-recourse factoring, the factor assumes the risk of unpaid invoices. Factoring finance can provide working capital for SMEs and can improve cash flow by providing faster access to funds. It also reduces the risk of bad debt as the factor takes on the responsibility of collecting payment from customers.